updated 5/17/2006 11:25:43 AM ET 2006-05-17T15:25:43

Consumer prices — propelled by higher gasoline, clothing medical care costs — jumped sharply in April, stoking inflation fears and sending stocks tumbling.

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The 0.6 percent increase in the Consumer Price Index, the government’s most closely watched inflation barometer, was the largest in three months, the Labor Department reported Wednesday. The rise came after a strong 0.4 percent advance in March.

On Wall Street, stocks plunged on the news .

Excluding energy and food products, which can swing widely from month to month, “core” prices went up by 0.3 percent in April for the second month in a row. The Federal Reserve and economists closely look at this core inflation reading to get a better sense of how other prices are acting.

The sizable increase in core prices especially fanned fears that rising energy costs may be starting to breed a broader bout of inflation throughout the economy.

“The needle is moving in the direction of higher inflation,” said economist Ken Mayland, president of ClearView Economics. “This is not good news and suggests more companies are passing along their higher costs to consumers.”

The latest readings on inflation were slightly worse than economists were expecting. Before the release of the report, they were forecasting a 0.5 percent increase in overall consumer prices and a 0.2 percent rise in core prices.

So far this year, consumer prices are rising at an annual rate of 5.1 percent, much faster than the 3.4 percent increase registered for all of 2005. Core prices are advancing at a brisk 3 percent pace, compared with a more moderate 2.2 percent rise for last year.

To fend off inflation, the Federal Reserve bumped up interest rates last week to a five-year high of 5 percent. It was the 16th increase since the Fed began to tighten credit in June 2004.

Fed policymakers left options for future decisions wide open. They suggested another increase might be possible, or they could take a pause in their rate-raising campaign depending on how inflation and economic activity unfold.

The Fed’s next meeting is June 28-29. Mayland and other economists said Wednesday’s inflation report bolsters the case for another rate increase at that time.

One of the things the Fed will be keeping close tabs on is how energy prices affect inflation and economic activity.

Energy prices can make inflation worse. They also can crimp overall economic activity by forcing consumers and consumers to pare their spending and investment. Or, high energy prices can result in both scenarios — which would be an tricky position for the Fed to deal with. To counter inflation, the Fed would be inclined to boost interest rates. To treat economic weakness, the Fed would want to leave rates alone or in more serious cases, lower them.

Oil prices hit a record high of $75.17 a barrel in late April; they are now hovering close to $70 a barrel. Those high crude oil prices have pushed up prices at the gasoline pumps to $3 a gallon in some areas.

Wednesday’s report said that energy prices shot up by 3.9 percent in April. That was up from 1.3 percent in March and was the biggest gain since January. Gasoline prices rose 8.8 percent last month. Fuel oil prices went up 5.2 percent. Electricity prices rose 0.3 percent.

Clothing prices, which increased 0.6 percent, also helped to push up inflation at the consumer level last month. So did airline prices, which went up 1.6 percent, the largest since July. Medical care costs rose 0.4 percent. Costs for shelter, including rent, increased 0.3 percent.

Food prices, meanwhile, were flat in April after edging up by 0.1 percent in March.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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